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The Firm as a Socialization Device

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Author Info

  • Abhijit Ramalingam

    ()
    (School of Economics, University of East Anglia, Norwich NR4 7TJ, United Kingdom)

  • Michael T. Rauh

    ()
    (Kelley School of Business, Indiana University, Bloomington, Indiana 47405)

Abstract

Why do firms exist? What is their function? What do managers do? What is the role, if any, of social motivation in the market? In this paper, we address these questions with a new theory of the firm, which unites some major themes in management, principal-agent theory, and economic sociology. We show that although the market is a superior incentive mechanism, the firm has a comparative advantage with respect to social motivation. We then show that the market is efficient in environments that favor the provision of incentives, such as when subjective risk is low and performance is easy to measure. The firm is efficient in other environments where incentives are costly and/or ineffective. We compare our model and results with the views of Durkheim (Durkheim, E. 1984. The Division of Labor in Society. Free Press, New York) and Granovetter (Granovetter, M. 1985. Economic action and social structure: The problem of embeddedness. Amer. J. Sociol. 91(3) 481-510).

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File URL: http://dx.doi.org/10.1287/mnsc.1100.1239
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 56 (2010)
Issue (Month): 12 (December)
Pages: 2191-2206

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Handle: RePEc:inm:ormnsc:v:56:y:2010:i:12:p:2191-2206

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Related research

Keywords: embeddedness; endogenous preferences; institutions; multitasking; norms; principal-agent theory; theory of the firm; trust;

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Cited by:
  1. Lacetera, Nicola & Zirulia, Lorenzo, 2012. "Individual preferences, organization, and competition in a model of R&D incentive provision," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 550-570.
  2. Bénabou, Roland & Tirole, Jean, 2012. "Bonus Culture: Competitive Pay, Screening and Multitasking," IDEI Working Papers 756, Institut d'Économie Industrielle (IDEI), Toulouse, revised Mar 2013.
  3. Hiller, Victor & Verdier, Thierry, 2014. "Corporate culture and identity investment in an industry equilibrium," Journal of Economic Behavior & Organization, Elsevier, vol. 103(C), pages 93-112.

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